A Guide to Collecting Unpaid Invoices from Customers

Updated on 27th February 2025

Did you know that only 1 in 5 small and medium enterprises (SMEs) in Australia are confident they could survive the loss of a major client or supplier? For many of these businesses, this uncertainty stems from cash flow-related issues.

Unpaid invoices, meaning invoices issued to customers that have yet to be paid, can impact cash flow negatively by delaying working capital flowing into a business. So, what can your business do if an invoice is due and yet remains unpaid?

The key is to have the right systems and procedures in place to ensure invoices are collected, cash flow remains steady, and your business is well-prepared for sustainable, long-term success.

The Impact of Unpaid Invoices

Currently, the average time for Australian small and medium-sized businesses to receive payment is 35.4 days. Even if this delay falls within the invoice’s due date, it can be a challenging period for small businesses that rely on a steady flow of working capital.

Without reliable and consistent cash flow, businesses struggle to meet ongoing operational expenses, navigate market fluctuations, and invest in growth.

The Role of Invoice Finance

Invoice Finance enables businesses to unlock the value of their outstanding invoices by receiving a cash advance from a third-party financier, such as ScotPac.

Invoice Finance is a customisable and scalable solution for SMEs to access the working capital they need when they need it without having to put up assets as collateral or having to take on debt. That’s why SMEs can effectively use Invoice Finance as a cash flow management tool.

If you would like to know more about how your business could potentially benefit from Invoice Financing, read our blog article here.

How to Collect Unpaid Invoices from your Customers

However, some forms of Invoice Finance still require SMEs to manage their own debt collection. That’s why knowing how to collect payments from customers with outstanding invoices is crucial.

Collecting Unpaid Invoices

1. Follow Up  

If the due date for an outstanding invoice is upcoming and the invoice remains outstanding, your first point of call should be to follow up with your customer.

There are various reasons why a customer may not have paid an invoice, many of which are legitimate or at least understandable. A friendly yet formal reminder – preferably in writing – can prompt payment while fostering a stronger relationship with your customer.

2. Send a Statement 

If you have contacted your client but have yet to receive a response – or payment – the next step is to send a statement of outstanding costs via email or letter.

The statement should outline that the invoice is overdue and outline any applicable penalty fees.

At the same time, it is important that you do not offer any more work or service to the customer until the account is settled.

3. Call the Customer 

It is always harder for customers to ignore requests for payments during a conversation. Speaking with your customer over the phone gives them an opportunity to clarify their situation and intentions while allowing you to add a personal touch to an otherwise professional conversation.

If your customer is facing cash flow issues, you may agree to a documented payment plan over a set period, allowing them to settle their debt while maintaining your cash flow and preserving the business relationship.

4. Implement Late Payment Penalties (and Early Discounts) 

Charging a penalty for late payments will help to motivate customers to settle debts on time. It can also help your business to recoup any time or effort spent by your team in collecting the unpaid invoices.

If you decide to implement a late penalty fee, ensure that the amount, due date, and penalty fee are clearly outlined in the original invoice or initial customer contract. Otherwise, you may not be able to enforce it.

Alternatively, offering an early payment discount may be a more effective incentive. This creates a positive incentive for customers to settle their payment early. While your business will receive slightly less money, the benefit of increased cash flow may well be worth it.

5. Seek Professional Assistance 

As mentioned earlier, Invoice Finance is an effective solution that allows SMEs to use unpaid invoices as collateral to receive a portion of their value upfront. This helps alleviate cash flow issues. The rest of the value of the invoices, less fees, is provided once the invoices are settled by your customer.

Here at ScotPacwe can tailor an Invoice Finance solution to perfectly suit your business’s needs. In fact, more than half of SMEs are now turning to non-bank lending (such as solutions like Invoice Finance with ScotPac) to fund new investment.

For more information about the different forms of Invoice Finance, read our guide to What is Invoice Finance here.

Alternatively, debt collection agencies can be engaged to use their expertise to recover payments from debtors. These agencies use tried and tested strategies for recouping money owed to you.

Simply informing customers that unpaid invoices may be sent to a debt collection agency can be enough to prompt payment.

6. Seek Legal Advice 

When all of the alternative methods for collecting unpaid invoices have been tried unsuccessfully, you may consider hiring a lawyer. Potential legal action will depend on your specific business, situation and needs. Of course, legal action comes at a cost, and it will be up to you and your business to determine whether pursuing this route is worthwhile compared to writing off the unpaid invoice as a loss, which may also have tax implications.

You can learn more about the legal route and what is involved on the Australian Government Business website.

Explore the Benefits of Invoice Finance with ScotPac

ScotPac currently supports more than 8,500 businesses and funds $23.9 billion in invoices annually. As the largest non-bank lender in Australia with over 35 years of experience, our team is a trusted provider of finance solutions like Invoice Finance.

If your business is struggling with cash flow management, has increasing levels of unpaid debt, or is just using it as a way to fund further investment, contact the lending specialists at ScotPac today.